Mortgage applications fall, even as rates drop

Seemingly unaffected by the end of the 16-day partial U.S. government shutdown, mortgage applications barely moved last week.

Total mortgage applications fell 0.6 percent week-to-week, while applications to refinance fell one percent and applications to purchase a home rose one percent, according to the Mortgage Bankers Association. The results do not include an adjustment for the Columbus Day holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.39 percent, the lowest rate since June 2013, from 4.46 percent, according to the weekly survey.

While mortgage rates were largely unaffected by the government shutdown, mortgage availability was delayed for some borrowers. The USDA mortgage program did not function at all during the government shutdown, and some lenders reported delays in special cases where personal attention was needed for Federal Housing Administration (FHA) loans. Otherwise most lending continued as usual.

Refinances have been falling steadily since mortgage rates rose at the beginning of the summer. They are now down 57 percent from a year ago and make up just 65 percent of all applications.

Meanwhile, home sales fell in September, and Realtors are now saying the cyclical high for the market was July and August. Mortgage applications to purchase a home are down 10 percent in the last four weeks, and all-cash sales are still abnormally high at 33 percent.

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A drop in mortgage volume has already caused layoffs at major banks, including JPMorgan Chase, and it is now more costly for the banks to make new loans. Origination costs are expected to rise 11 percent this year from a year ago, to nearly $5,900 per loan, according to National Mortgage News.

The higher costs are associated with complicated new requirements from the Consumer Financial Protection Bureau, the FHA, Fannie Mae and Freddie Mac. These take effect in January, but lenders are already working to put the new systems in place.

Lenders are also dealing with fewer delinquent loans. While mortgage delinquencies did bump up 4.23 percent in September from August, they are down 12.63 percent from a year ago, according to Lender Processing Services. Loans in the foreclosure process are down over 32 percent from a year ago.